Original Post | September 3, 2019 | Forbes Online
In Boston there is always one harbinger of fall you can count on. No, it’s not the changing colors of the tree leaves. It’s the plethora of moving vans and overstuffed cars crowding the streets as students make their way into dorms and back to class.
It’s back to school for their professors as well. While traditional academicians almost without exception have Ph.D. after their names, there is emerging a new group, the “Practitioner Professor”: men and women who have spent their lives building accomplished careers in their field are now coming into the classroom to share their knowledge as well as reflect on it themselves.
Interestingly, one area that has benefited from this growing trend is public finance.
There are numerous schools of public policy around the nation, but very few actually offer classes much fewer degrees or certifications focused on public finance or the municipal bond market.
Filling that academic gap is some of this market’s most highly regarded municipal bond analysts. It makes sense in a lot of ways if you think about it. Analytic work lends itself toward academia—a large part of both jobs is research, writing and forming opinions.
With that in mind, I gathered together some of the practitioner professors in this field for a roundtable discussion about municipal bonds, public finance and the municipal bond market. We discussed three topics: What were they going to be teaching their students this semester? What were some of the most important aspects of this market to master? What was their view of the future of credit analysis and public finance?
What emerged was a symposium offering insights valuable to investors as well as students. After all, how often do you get to learn from a combined nearly 175 years of investment and analytic experience? Pensions, Detroit, Puerto Rico, infrastructure—they cover a lot of ground.
So, pay attention—class is about to start.
First, an introduction to our practitioner professors.
Steve Schrager has had a long and distinguished career in the municipal bond market and public service, with posts across a variety of professional disciplines, including as an analyst at Moody’s Investor Service. A graduate of Hunter College, he returned to his alma mater to teach a course he developed. The class addressed the fundamentals of the public debt markets and how that relates to the financial and fiscal needs of state and local governments.
Similarly, Tom Kozlik has taught at his graduate school alma mater, the Fels Institute at the University of Pennsylvania. Kozlik is a highly regarded analyst with numerous awards from Smith’s Research and Ratings and Institutional Investor recognizing his work, which includes advising the Governmental Finance Officers Association and heading the Municipal Strategy and Credit team at Hilltop Securities.
Mike Belsky also teaches at his graduate school alma mater, the Harris School of Public Policy at the University of Chicago where he is now the executive director for municipal finance. In addition to his notable career as the group managing director at Fitch Ratings, he served Highland Park, Illinois as both a City Council member and then as the Mayor for two terms. With justifiable pride, he notes the city maintained its triple-A rating by Moody’s during his elected service.
After many years in a variety of senior leadership roles at S&P Global Ratings establishing rating guidelines and metrics across numerous government and nonprofit sectors, Liz Sweeney is now the executive in residence for government, healthcare and nonprofit finance at the McDonough School of Business at Georgetown University. She too holds a degree from Georgetown. In her current role, she advises on the relatively new Masters of Science in Finance program and mentors more than 230 students on career management and skill development.
Gerard Lian, a graduate of Drew University and New York University’s Wagner Graduate School of Public Service, teaches municipal finance at both institutions. Additionally, he holds a law degree from Rutgers University. A senior municipal analyst at a number of Wall Street Firms including Morgan Stanley and Invesco, is extensively published in his field, and served on the Governmental Accounting Standards Board Advisory Committee as well as the National Federation of Municipal Bond Analysts Board of Governors.
With thanks to everyone for their contributions and willingness to share their thinking, here is that learned discussion.
First Question. Let’s start with the basics. Looking at your professional experience, what are some key things you want to impart to students and investors in the municipal bond market?
Liz Sweeney: I like to foster an appreciation of the huge breadth of government, healthcare and nonprofit entities, making it a vast and highly varied sector. Students are usually impressed when I tell them there are 90,000 municipal entities in the U.S., 1.5 million nonprofits and about 5,000 hospitals. Public finance sits at the crossroads of government, policy and finance. It’s messy and complicated. It doesn’t always lend itself to neat application of financial theory. You need the ability to synthesize a huge variety of potential factors into an opinion.
Mike Belsky: I want students to have a deep understanding of the key role the municipal bond industry plays in building cities and states. The municipal bond industry is much more than the projects being financed or the admittedly somewhat dry topics of methods of sale or MSRB rules. Without the financial resources [this market provides], very few policy goals are realized at the state or local level.
Tom Kozlik: Dual goals, I think. First is for the students to understand the concept of the “new fiscal reality.” Simply put, it is the fact that local government expenditures are rising faster than revenues. Policymakers are going to need to be able to better effectively and efficiently allocate scarce resources. The second goal is to encourage approaching public policy problems with a critical framework. One of my students told me that now, as a public administrator, he looks at almost every problem on his desk through the framework learned in this program.
Steve Schrager: My goal from the outset was to instill an analytical discipline in the decision-making process. I saw a gap between the theory of planning, projects, and services with the reality of paying for them. It’s important that future analysts, planners, and public administrators understand financing and fiscal impact of these proposals. That parallels Tom’s views to some degree.
Gerry Lian: There is a package of takeaways from this instruction, but I’d focus on two. First, I want students to have an enriched understanding of the value of the recurring investment in public infrastructure facilitating economic growth and improved quality of life. Second, the importance of providing financial tools and viable funding options to pay the related costs of that infrastructure. Tom’s “new fiscal reality” rings true—there is already a pressing need to devise creative financing solutions and bonding techniques as a work-around to funding challenges. This is particularly true with respect to underfunded pensions. My ultimate aim is to give students a knowledge base and get them engaged to generate fresh ideas to tackle seemingly intractable problems.
Second Question. Earlier, Liz said public finance is “messy and complicated.” That can make it challenging to understand its complexities. What do you suggest as the most effective ways for investors or students to get a handle on the municipal bond market?
Steve Schrager: I always want to make finance tangible. For example, teaching in New York City, I tied the city’s 1970s fiscal crisis and its repercussions over the past four decades to current issues and challenges in prioritizing funding, programmatic needs, and the impact of political change on public policy. Students prefer to learn about the big picture and general concepts (economic, debt, finances and government) as opposed to formulas and calculations. The latter is important, of course, but without context, they’re just numbers. Put down the finance text and pick up Greater Gotham by Mike Wallace, an engaging history of NYC from 1898-1919. Everything from the development of the subway to the birth of radicalism is discussed. Of course, municipal bonds play a prominent role. History that reads like a novel!
Liz Sweeney: I agree with Steve on making finance applied as the best way to make it understandable. At Georgetown, I’m collaborating in leading the Summer Clinics Program–an 8-week internship-like experience that pairs student teams with corporate or nonprofit partners to solve a complex business problem. It doesn’t get more applied than that!
Gerry Lian: To capture the importance and excitement of the municipal bond business and communicate this to students demands creative lecturing, stimulating readings and informative multi-media resources. With my legal skills, I cover Chapter 9 [that part of the Bankruptcy Code for Municipal Entities] and go through Detroit’s Plan of Reorganization. I make extensive use of historical and present-day case studies, from the Erie Canal back in the 1800s to today’s financings by the Chelan Public Utility District, the Hudson Yards, and Denver Airport. These projects show how the spillover benefits of infrastructure investment enable public works amply pay for themselves.
Tom Kozlik: I agree with using case studies to make finance real. Gerry and I are on the same page, almost literally. I suggest a deep dive into the Detroit bankruptcy using Nathan Bomey’s excellent account Detroit Resurrected. I use that in my class and I recommend it highly to anyone wanting to better understand those “messy and complicated” issues around public finance and municipal credit analysis. I also have several guest speakers. Students sure appreciate the real-world examples. I’d add that some of the students are concerned the finance-related concepts will be too much for them. And there is a certain amount of basic finance necessary, but once we talk through the concepts and apply them to real life, they realize it’s not quite as daunting. That’s a lesson in itself.
Mike Belsky: I agree with my colleagues here. The exciting part about municipal bonds is that the industry is dynamic; we get to discuss topical, headline issues. Like Tom, I’ve delved into the Detroit bankruptcy and, more recently, focused on Puerto Rico. Outside of credit events, I encourage students and investors alike to follow tax and regulatory changes that may impact the municipal market.
Third Question. What are you seeing as a trend among today’s students that you think will influence the market in the future?
Gerry Lian: In this age where pervasive social media and rapid information flow bring news events into sharp focus, students pay increased attention to major public policy challenges confronting state and local governments. Witness the barrage of media coverage of a spate of municipal bankruptcies, insolvent public sector pension systems, neglected transportation networks and contaminated drinking water. These have aroused concern.
Tom Kozlik: I have always gotten the sense that public policy students generally have a strong sense of duty. It is why they get engaged in this field and continues to drive them in their careers, either in the public or private sectors.
Mike Belsky: I’d add to what Tom just noted. Today’s students care about positive social outcomes. They recognize that fiscal issues such as unfunded pension liabilities are making it difficult for government to provide services important to economic development and quality of life such as education, public safety, healthcare, and basic infrastructure.
Liz Sweeny: Being in Washington D.C. and a Jesuit institution, we attract a diverse student body with a global perspective, an appreciation of government and policy issues, and an interest in social causes. Some students are interested in combining their finance skills with a cause that they are passionate about, such as social impact investing and sustainability. Overall, the students are generally interested in ensuring that their work has meaning and that they are working for organizations where they can advance ideas, impact change and where ideas and new methodology is valued.
Steve Schrager: I see a new generation of public finance analysts infusing a needed high level of energy, knowledge and enthusiasm. There may be many factors in this, but I believe it is in large part due to the increased interest in ESG and green financings as well as emerging technologies and multiple disciplines. As an old school analyst, I was always focused on the negative aspects of a credit. Many of my students were far more positive and optimistic. That led me to be more optimistic as well.
Bottom line. In summary, three main points seemed to emerge. First, governments are going to be facing increasing fiscal challenges arising from pension costs and tax revenue declines. This is going to require more creative solutions from the next generation of public policymakers and municipal market stakeholders, both public sector and private sector. Second, the next generation is certainly up for that challenge—they are engaged, mission-driven to have meaningful careers creating positive, meaningful outcomes. Finally, the municipal bond market is fortunate to have such an experienced cadre of professionals willing to share their depth of knowledge and vast experience to guide the next generation of policymakers and financial decision-makers. The fact that each professor here returned to the campus that shaped them to now shape others speaks volumes. Combined, all three are cause for optimism for the future of public finance.